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Carnage: 5 Sector ETFs to Avoid Like The Plague

By now, it's probably safe to assume to that most investors
know the SPDR S&P 500 (NYSE:
SPY
) is trading at its lowest levels since early March. Using the
sector SPDRs funds as examples, "outperformance" on Tuesday
really means "less bad" in the form of the Utilities Select
Sector SPDR (NYSE:
XLU
) and the Consumer Staples Select Sector SPDR (NYSE:
XLP
).

Even those low beta sectors are providing little shelter from
the storm as XLU is down more than a quarter of percent and XLP
is off 0.4% and has violated the $34 level. The message from
weakness, however slight, among low beta fare is that things are
significantly worse the higher up the risk totem pole an investor
chooses to go.

The result? A plethora of sector ETFs should not be sporting
scarlet letters and should be avoided by investors in the
near-term. Whether it's broken technicals, flawed fundamentals or
both, the recipe for success with the following funds is get out
of the way or get short.

Global X Copper Miners ETF (NYSE:
COPX
)
The scenario here is rather simple. China is trying to engineer a
soft landing. Whether or not the world's second-largest economy
is successful in that endeavor remains to be seen. What the world
knows is regardless of whether China is intentionally trying to
cool its own growth that scenario means demand for copper will
for wane.

Since China is the world's largest copper consumer, a slowing
Chinese economy is bad for copper futures and bad for copper
miners. Freeport-McMoRan (NYSE:
FCX
) is a prime example. The stock is down more than 20% from its
February peak. Freeport may only be 4.9% of COPX's weight, but as
the bellwether copper stock, it tells us copper miners should be
avoided for now. COPX's chart says the same thing. Following a
violation of support around $13.50, the ETF looks like it could
retest its October 2011 lows.

SPDR S&P Bank ETF (NYSE:
KBE
)
As we noted earlier,
bank stocks were leaders earlier this year
but that trend has reversed course in recent weeks. KBE is not
being picked on here, though the chart shows significant
vulnerability. The Financial Select Sector SPDR (NYSE:
XLF
) or any other comparable financial services ETF could replaced
KBE as a sector fund to avoid at the moment.

Market Vectors Steel ETF (NYSE:
SLX
)
As a cyclical play, the Market Vectors Steel ETF is in hot water
right now. SLX is almost 10% below its 50-day moving average and
nearly 8% below its 200-day line. The latter scenario could keep
plenty of investors away from SLX and its constituents because of
the argument that any security that's below its 200-day line is
in a bear market.

SLX was sporting a nice year-to-date gain as recently as early
March. Now all the ETF needs to do is fall another 3.5% and it
will be in the red on the year. It would take a decline of
another 23% for SLX to retest its 52-week low, something we don't
view as likely, but down is the path of least resistance for this
ETF over the near-term.

Market Vectors Coal ETF (NYSE:
KOL
)
A month ago,
we said KOL was destined to retest its 52-week
low of $27.42
. As of this writing, the downtrodden ETF is trading below
$29.25. Despite some compelling valuations and M&A
speculation pertaining to its holdings, KOL has been hamstrung by
depressed natural gas prices and is signaling it's more value
trap than value play.

SPDR S&P Retail ETF (NYSE:
XRT
)
Consumer discretionary and retail names have been upside leaders
this year and many of these stocks and ETFs at least made strong
efforts to hold their gains in recent weeks. Macroeconomic
headwinds, be they of the European or U.S. variety, have proven
to be too much for XRT and rival funds to overcome. Today's
strong volume decline has taken XRT below what once looked like
firm support at $60. The order of the day for XRT: No long
positions. Short it or buy put options or just leave it
alone.

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